5 best subscription business metrics you should measure for sustainable growth
You’ve set up your subscription business. Now, it’s time to see if what you’ve done is effective.
Enter subscription business metrics. These numbers are like an early warning system to keep you on top of your business. For your subscription box business, even if your monthly recurring revenue is high, you can see unsustainably high cancelation rates of 11-15% and above. You’ll need to keep up with metrics like these in order to keep your costs low and maximize profits.
With dozens of metrics out there, how do you know what subscription metrics will help? To save you time, we’ve narrowed the list down to our top 5 essentials:
Customer Acquisition Cost (CAC)
Customer Lifetime Value (CLTV)
Average Revenue Per Customer (ARPC)
Monthly Recurring Revenue (MRR)
Monthly Churn Rate
The best 5 subscription metrics
For this list, we’ve shown subscription metrics calculated month to month for businesses that sell one-time purchase products along with subscriptions.
1. Customer Acquisition Cost (CAC)
What does Customer Acquisition Cost (CAC) metric measure?
Your Customer Acquisition Cost (CAC) is an estimate of the amount of money it takes to acquire a new customer.
How is CAC calculated?
Total cost of sales and marketing / # of customers acquired
What does calculating CAC contribute to your subscription business strategy?
You can use this measurement to keep track of improvements when you change marketing strategies and sales processes. You’ll want to keep this number as low as possible while still maintaining the number of prospects you convert.
Additionally, if you use your CLTV to calculate your CLTV:CAC ratio, you can see whether the lifetime value of a customer is worth what it takes to acquire them. The benchmark is around 3:1, and anything lower should prompt reevaluation.
2. Customer Lifetime Value (CLTV)
What does Customer Lifetime Value (CLTV) metric measure?
Your Customer Lifetime Value (CLTV) is an estimate of the amount a customer spends during their lifetime as a customer.
How is CLTV calculated?
(Average purchase value x Average number of purchases x Average customer lifespan) - CAC
What does calculating CLTV contribute to your subscription business strategy?
You can use this metric to see whether you’re pricing subscriptions highly enough that they make each customer’s acquisition worth it. You can also keep tabs on how much you’re spending on acquisition in case you need to adjust.
Some other helpful questions this metric can answer include:
What segments of customers are most valuable?
Are you marketing to the most valuable segment?
How can you change your sales strategy to target this segment?
3. Monthly Recurring Revenue (MRR)
What does Monthly Recurring Revenue (MRR) metric measure?
Your Monthly Recurring Revenue (MRR) gives you an estimate of the revenue your business can expect to receive every month.
How is MRR calculated?
Sum up your recurring revenue from the month's customers, factoring in losses like recurring fees and customer refunds.
What does calculating MRR contribute to your subscription business strategy?
This metric allows you to keep track of whether revenue is trending upward or downward over the course of the year. Calculating this metric for a particular segment, like measuring MRR for subscription customers only, can also help you identify which customer event may have caused an increase or decrease in revenue. You can calculate MRR for new accounts, upgrading accounts, or accounts that have churned and then reactivated.
4. Average Revenue Per Customer (ARPC)
What does Average Revenue Per Customer (ARPC) metric measure?
Your Average Revenue Per Customer (ARPC) is an estimate of how much each customer is spending on average.
How is ARPC calculated?
Monthly Recurring Revenue (MRR) / Total customers
What does calculating ARPC contribute to your subscription business strategy?
You can use this metric as a gauge for whether your current processes are sustainable in the long run. If your ARPC starts nearing or even dipping below your CAC, it means that it takes more to acquire a customer than the revenue they generate in return. In that case, you may need to start reaching out to your customers and rethinking how you run your business.
Some questions this metric can prompt include:
Are your products and prices aligning for your customers?
Are you fitting customer expectations and trends for your space?
Is your marketing strategy the right fit for your demographic?
5. Monthly Churn Rate
What does Monthly Churn Rate metric measure?
Monthly Churn Rate measures the rate at which your customers have been canceling their purchases over the course of a month.
How is Monthly Churn Rate calculated?
Total percentage of customers who leave or cancel / Total number of remaining customers
What does calculating Monthly Churn Rate contribute to your subscription business strategy?
Your Monthly Churn Rate can be used to keep tabs on customer happiness and improve it when needed. Calculating your monthly churn can help you answer these questions:
Are your customers satisfied with your subscription or service?
How are you performing compared to the industry standard? Churn rates for subscription businesses average around 6-7%.
How much of your churn rate is involuntary (due to payment failures) vs. voluntary churn (due to issues with the product or service)?
Target what matters to improve your subscription business
Staying on top of your subscription metrics means knowing immediately when you have to make a change. These numbers give you a quantifiable measurement that you can use to gauge your improvement or decline over time and compare your performance to others in the industry. It also means that you’ll be able to reach out to your customers, ask the right questions as soon as they’re relevant, and make the improvements they need.
Create healthier, more efficient subscription processes
Questions about subscriptions? Check out our definitive guide
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